Home Improvement Loans

Home improvement loans are borrowed funds used to repair, update, or remodel your house or property. Home improvement loans can take different forms?a home equity loan or line of credit is based on the equity you have earned on your home. Personal loans or personal lines of credit can also be secured specifically for home improvements. These loans, however, do not require you to tap into your home?s equity. Home improvement loans are not used for new construction, but rather for work on an existing structure.

What Kinds of Projects Can Be Funded With a Home Improvement Loan?

Home improvement projects generally fall into one of three categories: maintenance, updates, or remodels. Maintenance projects are undertaken to maintain already existing aspects of your home. Examples might be repairing or replacing a roof, repainting, or fixing a water leak and related damage. Home improvement loans are also used to update systems or rooms in your home. Perhaps your furnace has gone kaput or your plumbing is outdated. Or maybe your kitchen needs to lose that 70s look! Update projects might include replacement windows, new heating or cooling systems, new cabinets and appliances in the kitchen or new fixtures in the bathroom. Remodeling projects are often the most extensive and expensive of all home improvement projects. These might range from changing the interior walls of your home to adding square footage in the form of new rooms or even a conservatory.

What is the best use of your home improvement dollar?

Ultimately, each home owner must decide for him- or herself what will bring the most value for the money. If you are planning to remain in your home long-term, home improvement funds are best spent on the projects that will bring the most comfort and enjoyment to you as the homeowner. However, if you are looking to increase the value of your home with a future sale in mind, adding square footage, updating kitchens and/or bathrooms, or improving curb appeal are the most recommended uses of home improvement funds.

Getting a Home Improvement Loan, Step-by-Step

Each situation, even different lenders, will require a slightly different arrangement of these steps, but the basic process will be as follows:

1. How much do you need? Take the time to assess the work you?d like to have done on your home. Contact contractors in your area and get project estimates. If you?re doing the work yourself, make a list of materials and estimate your costs. Be sure to figure contingency funds into your budget?these are funds to cover unexpected costs. For a simple project, 5% should be sufficient, but for more complex projects, up to 20% is recommended.
2. Gather your paperwork. No matter what lender you end up using, they will all require documentation. Typically you will need the following: proof of income sources; proof of employment, if applicable; tax returns from the last couple years; credit history; and documents to establish your debt-to-income ratio.
3. While you?re at it, check your credit reports. You don?t need any nasty surprises while you?re sitting there waiting to sign papers. Be proactive and check your credit reports first. That way, if there is an error you can take care of it prior to making your loan application.
4. Do your homework. There are all kinds of lenders out there?most reputable, but some not. Shop around and make sure a potential lender is legitimate. If it sounds too good to be true, it probably is. Don?t be embarrassed to take extra time to read the fine print?check it with a trusted professional if something seems fishy. Better to appear a little uptight than be the victim of fraud.
5. As mentioned in the first paragraph, there a several different options for funding your home improvement project. You?ll need to decide what type of loan will work best in your situation; you may be able to choose a home equity loan or line of credit or a personal loan or line of credit.
6. You may be able to get pre-approved for a loan, at which point you?ll have a pretty good idea of the amount you?ll actually be able to borrow. If the amount is less than you?d planned, you may need to re-evaluate and prioritize your project list.
7. Last but not least, make sure you can make the payments before you sign on the bottom line. Even though banks are more reserved about lending money these days, they still may offer a bigger loan than you can comfortably manage. Only you know what you can really handle?be honest with yourself! Also, if you are taking a home equity loan, it?s wise to leave at least 20% equity in your home so you have a reserve in case of emergency.

What Are the Current Home Improvement Loan Rates?

The best answer?it depends. Home improvement loan rates will vary by lender and type of loan. Loans based on the equity in your home sometimes have lower interest rates since they are tied to some collateral, while loans not tied to your home?s equity or other collateral often have higher rates because they are a bigger risk for the lender. Your interest rate will also depend upon your credit score and your debt-to-income ratio.

Getting a Little Back?Home Improvement Tax Credits

This paragraph must start with a disclaimer?we are not tax professionals. Seek the advice of a tax professional before claiming any tax benefit on your return! With that said, we will point out that you may be able to reap tax benefits from your home improvement project. You may be able to write off all or some of the interest in your home equity loan. Also, the Federal government, as well as some state and local governments offer tax credits for certain projects. These credits usually support projects that improve energy efficiency or add green energy sources to your home.

Tagged as: home improvement loan rates, home improvement loans, home improvement tax credit, how to get a loan, how to get approved for a loan, steps to getting a loan

Source: http://www.improveyourhomeandgarden.com/home-improvement-loans

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